SINALOA INCORPORATED: UNDERSTANDING THE SINALOA CARTEL LIKE A CORPORATION TO REDUCE VIOLENCE IN MEXICO The University of Texas at Austin – B.A. Adriana Ortiz (TC 660H or TC 359T) Plan II Honors Program The University of Texas at Austin August 14, 2017 __________________________________________ (Supervisor Name) (Supervisor Department) Supervising Professor __________________________________________ (Second Reader Name) (Second Reader Department) Second Reader Acknowledgements First and foremost, I want to thank Dr. Stephanie Holmsten and Dr. Rachel Wellhausen for their support, patience, and guidance over the course of this project. Secondly, I want to thank my family and friends for offering me the strength to continue writing even when I hit roadblocks or was extremely stressed out. Lastly, I want to thank the Plan II Office thesis advisors and academic advisors for their continued support and belief that I could finish the project. ~ 2 ~ Abstract Author: Adriana M Ortiz Title: Sinaloa Incorporated: Understanding the Sinaloa Cartel like a Corporation to Reduce Violence in Mexico Supervising Professor: Dr. Stephanie Holmsten Second Reader: Dr. Rachel Wellhausen The Sinaloa Cartel is one of the various drug cartels currently existing in Mexico, but unlike other drug cartels, the Sinaloa Cartel has lasted the longest, was titled the most powerful drug cartel in the world by the U.S. Treasury Department and developed the most sophisticated business system. The characteristics of the system are strategies that legal corporations such as the United Fruit Company, the Brown and Williamson Company, and the Browning Arms Company use; and that includes offshoring, social media, and collaboration with the government of its home state, respectively. These strategies were all necessary for the Sinaloa Cartel to expand its presence in the globalized illegal drug market. That said, similar to legal corporations when there is a lack of regulation; businesses are prone to illicit activities that lead to violence. In the case of the Sinaloa Cartel, the lack of regulation on drugs has allowed them to grow their business and give them an incentive to engage in criminal activities such as the use of violence to maintain its corporate-like business running. Therefore, an alternative solution to the drug war is offered to counter the Sinaloa Cartel as a multinational corporation, and reduce the violence associated with it. ~ 3 ~ Table of Contents Acknowledgements 2 Abstract 3 Introduction: Violence in Mexico 6 Chapter 1: Sinaloa Cartel like a Corporation 24 Chapter 2: Lack of Regulation 31 Chapter 3: Alternative Solution 49 Conclusion 57 Bibliography 60 ~ 4 ~ State of Sinaloa U.S.-Mexican Border Sinaloa Influence in Central America ~ 5 ~ INTRODUCTION: VIOLENCE IN MEXICO In the 2016 report from the International Institute for Strategic Studies—a leading authority on global security, political risk, and military conflict—Mexico were given second place, behind the Syrian civil war, for housing one of the world’s most lethal conflicts. The report pointed at fatalities in “states that were key battlegrounds for control of competing [drug] cartels [that wer] seeking to ‘cleanse’ areas of rivals in their efforts to secure a monopoly on drug-trafficking routes and other criminal assets” (“IISS” 2017). The report was a crushing blow to the current President of Mexico, Enrique Peña Nieto. Since the 1990s Peña Nieto’s predecessors were plagued with violence associated with drug trade organizations (DTOs). In figure 1, the rate of homicides serves as a measurement for the degree of violence since 1990, and it was recorded by the Instituto Nacional de Estadistica Geografia e Informatica (INEGI) shown in orange. Furthermore, this was a troubling result of a nearly four-decade long battle against the drug war that was initiated by President Richard Nixon, in the early 1970s in an attempt to halt the increasing drug consumption that had developed among Americans. Nevertheless, this paper starts its focus on the year 1990 because this is when the Guadalajara Cartel led by Miguel Angel Felix Gallardo, also known as El Padrino, was fragmented into five sectors, one of which was the Sinaloa Cartel led by Joaquin Archivaldo Guzman Loera—El Chapo (Beith 2010). Unlike the other four branches of the now dismantled Guadalajara Cartel, El Chapo managed to stay in control of the Sinaloa Cartel from 1990 – 2016 and he expanded the Sinaloa Cartel’s influence. He accomplished this while he was behind bars (Time 2014), and it was significant enough that in 2012 he was ~ 6 ~ deemed by the U.S. Department of Treasury as the most powerful drug trafficker in the world1. Figure 1: Homicide and Organized Crime Homicide Data from 1990 - 2016 Furthermore, as a business entrepreneur he distinguished himself enough for Forbes magazine to include El Chapo on its billionaire list (“#701 Joaquin Guzman Loera” 2017) with a specialization in shipping. At the same time, the Sinaloa Cartel is partly held responsible for the violence that consumes Mexico. As a business, scholars anticipated that the Sinaloa Cartel would be less inclined to engage in violence, but the reality is that 1 Press Center, U.S. Department of the Treasury. (2012, January 10). Treasury Sanctions Three Drug Traffickers Tied to Mexican Drug Lord Chapo Guzman ~ 7 ~ “violence…is not a function of the drug trade specifically. It is how the cartels manage everything from marketing to public relations to human resources” (Morris 2013). The reason is that the cartels do not have legal mechanisms that they can rely on because their activities are illegal. Thus, they cannot use the court system to settle law suits or create a reliable contract between cartels (Beith 2010). For this paper, the drug trade of the Sinaloa Cartel is the main focus. The Sinaloa Cartel has diversified into other markets such as “extortion, kidnapping, and human trafficking” but “most of [the] income is from the drug trade” (Bonner 2012). Furthermore, as the biggest supplier of illegal narcotics in the United States the Sinaloa Cartel is targeted under the “drug-free.” Since illegal narcotics are the most important business for the Sinaloa Cartel, how should the Sinaloa Cartel be conceptualized to understand its tendency towards violence? Scholars have argued that there are three key events that explain this phenomenon. THE DECLINE IN POWER OF THE MEDELLIN CARTEL and THE MULTILATERAL AGREEMENT OF NAFTA The combination of the fall of the Medellin Cartel in 1993 and the creation of the North American Trade Agreement in 1994 created a competitive environment in which various drug trade organizations violently clashed for control. In the 1980s Pablo Escobar, the capo of the Medellin Cartel, lead his business to its peak. His main routes consisted of traveling from a small island in the Bahamas to Miami, Florida. The trade was so lucrative that, according to the Wall Street Journal, during this time one kilo could have cost Escobar $1,000 to refine, but he would sell it in the United States between $50,000 to $70,000 U.S. dollars (Green 2017). Unfortunately, it was around that same time that homicides ~ 8 ~ tripled in the area, which is what triggered authorities into action. At the federal level, the first step to interfere with the drug cartel’s business was with President Ronald Reagan who created the South Florida Task Force and effectively seized up to 56% of the shipments made to Miami (Green 2017). Under these circumstances, Escobar decided to change his route strategy and included Mexico as Colombia's “trampoline” into the United States. The negotiation was essential that the Medellin Cartel provided the cocaine and that Mexico’s drug cartels distribute the cocaine into the United States at a fee. One of the drug cartels responsible for this distribution was the Sinaloa Cartel. At the time, the Sinaloa Cartel was a part of the Guadalajara Cartel under Miguel Felix Gallardo—who developed an inflated sense of power that drove him (along with two other allies) to plot the brutal assassination of Drug Enforcement Agency (DEA) agent Enrique “Kiki” Camarena in 1985. By 1989, Felix Gallardo was caught and convicted, and he moved to a high-security prison. The Guadalajara Cartel was divided, and the Sinaloa Cartel fell under the leadership of Joaquin “El Chapo” Guzman, Hector Luis Palma Salazar, and Adrian Gomez Gonzalez in the 1990s and the Tijuana Cartel fell under Arellano Felix brothers (Beith 2010). By 1993, while trying to escape the DEA and Colombian Federal police, Pablo Escobar died. After his death, the Medellin Cartel lost its edge in the cocaine market, and the Sinaloa Cartel took advantage of this disruption by trying to appropriate itself over the drug trade routes, which led to violent conflicts with other drug cartels. In 1994, the conflicts between the rivaling drug cartels increased when the North American Free Trade Agreement (NAFTA) was signed. This multilateral agreement between the United States, Mexico, and Canada facilitated the transportation of legal consumer goods across the border by reducing tariffs and establishing trade preferences between the three countries. At ~ 9 ~ the same time, NAFTA also made it less risky for the Sinaloa Cartel to ship its illegal goods across the border for two reasons. First, since the agreement was signed “merchandise trade among the NAFTA partners has more than tripled, reaching US946.1 billion in 2008” (“North American Free Trade Agreement” 2017), which means that it is almost impossible to interdict drugs at the border. To put the difficulty of interdicting drugs at the border into perspective, when President Nixon declared his war on drugs in the early 1970s he also implemented Operation Intercept to find drugs at the border between Mexico and the United States. The operation only lasted 17 days because it backed up cars deep into Tijuana and because agents had only seized a few actual drugs (Grillo 2011).